COMMENTS OF GLOBAL ONE
IDA PROPOSED CODE OF CONDUCT
AND INTERCONNECTION/ACCESS ISSUES
REPUBLIC OF SINGAPORE
5 JUNE 2000
I. Introduction
1. Global One Communications PTE Limited (“Global One”) is pleased to submit its
comments in response to the two consultative documents released by the Info-
Communications Development Authority (IDA) on 17 April 2000. In this filing
Global One addresses both the “Code of Practice for Competition in the Provision
of Telecommunications Services” and the consultation document titled
“Interconnection/Access in a Fully Liberalized and Convergent Environment”.
2. Global One fully supports the IDA’s objective of promoting entry and investment;
ensuring the global competitiveness of users in Singapore; enhancing the scope and
quality of available services; and guaranteeing the fair operation of markets through
appropriate regulation of dominant carriers and the establishment of a cost-oriented
and non-discriminatory interconnection regime. Global One has consistently
advocated market liberalization and choice in telecommunications markets and
believes that these objectives can be recognized through policies encouraging market
access, fair competition, full sector specific and competition law regulation of
dominant service providers, and the provision of cost-based interconnection
services. The two consultative documents follow naturally from the recent
proceedings concerning the entry of StarHub and the 1 April 2000 further
liberalization of the market. Global One is very pleased to participate in this
proceeding which will establish the ground rules for competition, both at the policy
level and at the critical implementation level. Global One very much supports the
direction taken by IDA and submits comments herein on these critical issues.
3. Global One, previously a joint venture among Deutsche Telekom, France Telecom
and Sprint, is now fully owned by France Telecom. Global One has a wholly owned
operating entity in Singapore. This entity is a competitive supplier of voice and data
services pursuant to its Service-Based Operator (both Individual and Class) licenses
as well as Leased Circuit and VANs licenses. Global One is now expanding its
presence in Singapore in view of the recent SBO license grants and in anticipation of
IDA granting an FBO license to Global One.
4. On a regional basis, Singapore has become a very important location for Global
One. Successful acquisition of the two SBO licenses and the FBO license will enable
Global One to develop Singapore initially into the regional headquarters for South
East Asia, and potentially as the Asian headquarters in the future. Certainly the
outcome of this proceeding will influence the exact degree of investment and
presence that many carriers, including Global One, make in Singapore. Global One
is very hopeful that the results of the proceeding will serve as a pro-competitive
model for other markets around the world, and not just those in Asia. More
information about Global One, France Telecom, and Global One’s Singapore
activities in found in Annex 1.
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5. Global One serves the business, consumer and carrier markets world-wide, with a
special focus on multinational companies and their suppliers, distributors and
customers. Global One has a clear vision of Singapore as a high technology
information/knowledge and services driven market in which it participates as both a
reseller and facilities based carrier. As such, Global One has a strong market interest
in this proceeding and its outcome.
6. Global One very much supports the adoption of a Code of Practice and applauds
the IDA for the pro-competitive positions articulated in the published draft. Global
One looks forward to the final IDA Code of Conduct proposal and will submit
further comments on that document. In contrast to some similar documents issued
by regulators around the world, the IDA’s proposed Code is generally clear, concise,
and extremely well-reasoned. As such, the proposed Code will do much to
encourage vigorous market entry and to ensure full competition in the Singapore
telecommunications sector. Notwithstanding the above, however, experience in
other countries has shown that no matter how promising a proposed regulatory
initiative is, the success of any regulatory initiative always lies in the government’s
resolve to implement and, more importantly, to enforce effectively those rules.
7. The terms and conditions on interconnection are probably the most critical aspect of
any meaningful liberalization program. Interconnection is a major input for any new
entrant’s ability to successfully enter a market. At the same time it is a bottleneck
(i.e., essential facility) provided by a entity with market power with whom the buying
new entrant competes. The incentives of the dominant carrier in providing this
monopoly services are clear (e.g., deny, delay, degrade and over-price).
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Interconnection issues range from price levels and cost structures to unbundling,
equal access, numbering and provisioning. Cost-orientation using incremental costs
and non-discrimination (particularly in terms of what SingTel provides to itself and
to others) are key interconnection principles. Global One generally supports the
positions taken on this issue by IDA but proposes more details on implementation
aspects.
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II. General Views
A. The IDA Must Always Consider the Effects of its Actions on the Entry Decisions of
Firms
1. Economic regulation should concurrently address two equally important primary
missions. The first mission is to ensure that a dominant firm cannot exercise
market power and engage in anti-competitive conduct against its rivals. As the
IDA recognizes, such anti-competitive conduct by dominant carriers could take a
number of forms including denying access and interconnection to competitors of
essential facilities (§ 7.4.2); raising rivals costs via pricing abuses (§ 7.3); predatory
pricing (§ 7.3.1); price squeezes (§ 7.3.2); foreclosing competition in adjacent
markets (§ 7.4); cross-subsidizing its services (§ 7.4.1); using proprietary customer
confidential information to the detriment of competitors; and having advance
notice of network changes and other information that SingTel’s competitors will
need to know. Global One will address the IDA’s specific measures to mitigate a
dominant firm’s conduct in Part III of its comments.
2. The second and equally important mission of economic regulation is to find ways
to remove – pro actively – all direct and indirect barriers to entry. Indeed, because
competition is not a zero sum game (i.e., the discredited notion that one firm can
be made better off only if another firm is made worse off) and the goal of
restructuring is to move from a market characterized by one firm (i.e.,
monopoly) to many firms (i.e., competition), then removing a broad range of
barriers to new entry is one of the overarching goals of the entire liberalization
effort. As the IDA itself recognized in its executive summary, therefore, “while
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the limits on entry into the Singapore telecommunications market… has created
the potential for the development of a competitive telecommunication market”, in
order or this potential to be realized… a suitable regulatory regime must be put
into place. (Emphasis in original). Examples of barriers to entry include…
3. Direct and indirect barriers to entry can take many forms in the telecoms
industry. Incumbent created barriers to entry include control of essential
bottleneck facilities (e.g., local loops, central offices, backhaul capacity, and cable
landing facilities). The inquiry does not end here, however. Regulatory policies
can also unintentionally act as barriers to entry as well. These regulation induced
barriers to entry can include fees to dig up the streets, local franchise fees,
compliance and administrative costs (e.g., reporting and tariffing expenses);
build-out requirements (both in terms of capacity and geographic scope), hidden
universal service fees, and even regulatory capture and delay.
4. Entry into a telecommunication market is an extremely time and capital intensive
endeavor, and will only occur if the new entrant believes that entry will be
profitable. A firm’s decision to enter any market can therefore be described as
the “entry condition” i.e., entry will only occur when:
(a) Post-Entry Profit (d) minus
(b) Inherent (exogenous) Entry Costs (x)1 minus
(c) Incumbent or Regulation-Induced Entry Costs (endogenous) (e)2 plus any
1 Exogenous entry costs are essentially the costs of doing business – e.g., marketing, billing, repair and
maintenance, legal, construction costs, and the like.
2Examples of regulation-induced endogenous entry costs can range from mere compliance costs (e.g.,
USO fees, reporting requirements, tariff filings, license applications, etc.) to fees for digging up the streets or
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(d) Spillover Effects (s) – i.e., when some firms can enter more cheaply than
others can.
(e) Are greater than Zero3
This maxim can be represented by the formula:
d–x–e+s>0
5. Post entry profits might be (loosely) defined as revenues minus average cost
(excluding amortized sunk costs). This margin must be sufficient to cover any
sunk costs (x, e) the firm must incur upon entry (and, to possibly, exit). Sunk
costs are akin to a non-refundable deposit, and as such substantially increase the
risk of entry. Sunk costs can be either a result of the capital expenses for
technology and marketing necessary to enter a market (exogenous sunk costs) or
the result of incumbent behavior and regulatory decisions (endogenous sunk
costs).
6. Virtually every decision, past and present, that the IDA makes alters one or more
variables in the entry equation (with the exclusion, by assumption, of x). For example
(but not limited to), retail and wholesale price regulation will affect d; and
regulatory requirements for entrants, particularly relevant to this proceeding, can
local franchise fees. Similarly, spectrum auction and or user fees can also be significant regulation-induced
endogenous entry costs. Incumbent-induced entry costs can include anything from inflated network upgrade
costs to interconnection and provisioning delays. One real-world example of an endogenous sunk cost is the
cost of physical collocation in an incumbent’s submarine cable landing facility. That space cannot be easily
duplicated. The incumbent knows this, and rationally prices collocation in a manner akin to an “entry tax.”
3George S. Ford, Opportunities for Local Exchange Competition Are Greatly Exaggerated, Electrical Light &
Power (April 1998) at 20-21 (available at http:/www.phoenix-center.org/library/for_1.doc).
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raise entry costs (e). As such, with the exception of some exogenous entry costs
(x), the IDA has direct control over all elements of the entry condition equation.
For example, the IDA can control (d) (revenue minus variable cost) through
regulation. Indeed both phone rates and collocation prices, loop prices, universal
service obligation taxes, etc. are direct controls over (d). Spillovers are less direct,
but prematurely deregulating dominant firms can reduce the use of rivals’
spillovers. The effects on (e) of regulation deal specifically with sunk costs, but
regulators are not limited to that.
7. Accordingly, “liberalization” requires more than just creating a regulatory
environment which permits licenses to be granted in a non-burdensome manner.
Liberalization, in order to maximize user benefits, must also remove all possible
barriers to entry and effectuate a market structure that can sustain tangible and
meaningful competition in the long-run. As such, the IDA must do more than
promulgate rules which bar anti-competitive conduct particularly by the
dominant players in the market. The IDA must also: (a) always consider the effects of
its decisions, from basic interconnection rules and codes of conduct to merger
approvals, on the entry decisions of firms; and (b) continually analyze the impact of the
dominant carrier’s actions on competitors and users in both the short and long terms.
B. The IDA Should Make One Adjustment to its Analytical Framework.
1. Global One supports the IDA’s overall approach to evaluating competition.
The draft document goes through, point by point, each of the various types
of strategic anti-competitive conduct the IDA must be on guard against by
dominant firms such as price signaling, price squeezes, cross-subsidization,
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predatory pricing, bundling and undue discrimination. Global One agrees
that these (and other) issues/examples of anti-competitive practices are very
real concerns to new entrants and users. Global One has only one general
issue with the IDA’s otherwise excellent analytical framework in Section 2 of
the proposed Code.
2. Global One believes that the draft Code’s proposal may rely far too much on
a “traditional” competition law approach to issues of licensee classification
and market power – i.e., first define the product markets via a “small but
significant non-transitory increase in price,” then define the relevant
geographic markets (again using the “small but significant non-transitory
increase in price” test), etc. While such a static, traditional analysis is
appropriate for most markets, it is less clear that such an approach accurately
reflects the dynamic changes that are occurring in the telecom/information
markets. The economic literature increasingly indicates that such a
traditional approach (and, in particular, an over-reliance on market
definitions and market shares) is ill-suited for the dynamic
telecommunications markets because it cannot adequately account accurately
for the real potential for change that characterizes telecommunications
markets.4 In short, a traditional competition law approach may not highlight
or capture all anti-competitive activities of firms with market power or more
importantly, remove residual barriers to entry.
4 What Hath Congress Wrought? Reorienting Economic Analysis of Telecommunications Markets After the 1996
Act, ANTITRUST MAGAZINE (American Bar Association, Spring 1997) (available at http://www.phoenix-
center.org/library/reorient.doc).
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3. In the traditional competition law analysis, “good” market performance is
usually characterized by the presence of static economic efficiencies
(declining prices), dynamic economic efficiencies (innovation in new services
or technologies), or both. If a market has these characteristics it is generally
performing well and consumers will enjoy its benefits. However, this
approach may easily mask anti-competitive practices in a dynamic
marketplace if prices still are falling or efficiencies are still increasing. Long
term benefits may be sacrificed by anti-competitive practices even in dynamic
markets.5 That is, price decreases and long term benefits may have been
greater but for the anti-competitive actions.6 (This is, for example, the
essence of the pending Microsoft case in the USA).
4. As such, Global One suggests that because the IDA – as the regulator
charged with the long-term welfare of the Singapore telecommunications
sector – reject the sole use of a traditional hornbook competition law
approach and instead use the economic “first principles” and the Structure-
Conduct-Performance (“SCP”) paradigm of Industrial Organization
economics. A Structure-Conduct-Performance analysis is a better approach
for the dynamic telecommunications industry for several reasons.
5 See, e.g., F.M. Scherer & David Ross, Industrial Market Structure and Economic Performance (3d ed.
1990), at 4-5.
6 See also Walter Adams, Public Policy in a Free Enterprise Economy, in The Structure of American Industry
(7th ed. 1986, Walter Adams, ed.) (primary purpose of economic public policy paradigms should be to
“perpetuate and preserve, in spite of possible cost, a system of governance for a competitive, free enterprise
economy” where “power is decentralized; . . . newcomers with new products and new techniques have a
genuine opportunity to introduce themselves and their ideas; . . . [and] the ‘unseen hand’ of competition instead
of the heavy hand of the state performs the basic regulatory function on behalf of society”).
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5. First, the SCP paradigm, when used as an “analytical checklist,” permits
policy-makers: (a) to identify and understand precisely the structural
characteristics of the Singapore telecommunications market; (b) to identify
accurately what type of conduct is occurring within this structure (e.g.,
competition, discrimination, collusion, etc.); and then (c) use this information
to determine how the market is actually performing in the short-term and, more
importantly, determine how its policies can improve, if necessary, market
performance in the future.
6. Second, because the regulator’s goal should be to maximize consumer
welfare, the SCP paradigm allows policymakers to account accurately for the
real potential for change and consumer benefits that characterizes
telecommunications markets. Indeed, because both demand and supply
appear to be rapidly expanding,7 simply focusing the analysis on current
market conditions and superficial data may not reveal an accurate picture of
what is (or could be) occurring. In the new telecommunications
environment, policy makers must now explicitly account for the potential for
change in assessing the extent of competition in telecommunications
markets. 8
7 For example, on the demand side, telecommunications and, in particular, interexchange and
international services, is a growing industry. This is evident from the substantial increase in choices available to
consumers. On the supply side, technological change is ongoing. Moreover, the cost of underlying technology
is becoming less significant (e.g., the cost of fibre optic continues to fall), while the costs of billing, advertising,
and access continue to fluctuate.
8 See Burton H. Klein, DYNAMIC ECONOMICS 35 (1977) (“The essential difference between static and
dynamic economic efficiency is that whereas the former is the result of making choices along a
production-possibilities frontier, the latter is the result of extending the frontier by exploiting as fully as
possible a technological potential”).
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7. A dynamic forward-looking approach is also important because a failure to
account for such change may not provide a paradigm that detects and
promotes good market performance over the longer term.9 In an industry
that manifests the potential for rapid technological change and innovation,
such as telecommunications, an economic analysis should not focus too
narrowly or exclusively on a static snapshot. Rather, telecommunications,
with its significant potential for rapid technological advance, new services
and lower prices should be viewed from a dynamic perspective.10 A static
hornbook analysis, when used as a substitute for a comprehensive dynamic
review, can actually impose significant economic costs on an industry
characterized by rapid change, because it will accept minimal public benefits,
not require a maximization of consumer benefits, and mask anti-competitive
behavior.11
C. The IDA Must Consider Explicity the International Implications of the Proposed
Code of Conduct.
1. The provision of international services is logically an important part of the current
liberalization program. Because of Global One’s focus on multinational users and
9 See, e.g., United States. v. FCC, 652 F.2d 72, 106 (D.C. Cir. 1980). There, the US Federal
Communications Commission, , specifically rejecting arguments in opposition raised by the US Department of
Justice and Federal Trade Commission, approved a satellite joint venture between IBM and Comsat to offer
integrated voice, data, and digital image transmission service. The FCC found that the potential competitive
benefits would outweigh any alleged current anti-competitive affects created by the proposed joint venture.
The FCC’s forward-looking approach made a significant contribution to the performance of this market.
10 See Walter G. Bolter et al., TELECOMMUNICATIONS POLICY FOR THE 1980’S: THE TRANSITION TO
COMPETITION at 360 (1984).
11 See Friedrich A. Hayek, The Fatal Conceit: The Errors of Socialism 85 (1988) (“What cannot be
known cannot be planned”); see also In re Motion of AT&T Corp. to Be Reclassified as a Non-Dominant
Carrier, FCC 95-427, 11 FCC rcd 3271 at ¶ 32 n. 90 (rel. Oct. 23, 1995).
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international traffic, Global One would emphasize the need to promote
competition and maximize user benefits in this market sector as well. The
proposed code and interconnection rules must apply with equal force to those
areas essential for vigorous competition in the international sector. As such,
Global One respectfully recommends that the IDA simply state explicitly that the
proposed Code and interconnection rules do in fact apply equally to those areas
essential to international traffic – e.g., interconnection and termination rates for
international traffic (e.g., IRU pricing, backhaul, cablehead access, IPLs provided
to carriers, etc. are interconnection services to be provided on a wholesale, carrier-
to-carrier, cost-oriented and non-discriminatory basis). Such a clarification from
the IDA would be most helpful and give certainty to the market.
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III. Comments Regarding Specific Provisions of the Code
A. Section 1. Introduction and Goals
1. Global One supports the goals, scope and principles of the Code as articulated in
Section 1. However, Global One would note that reactions to market failures
must be immediate (and better yet anticipated and prevented, Section 1.3.3); that
premature elimination or modification of Code provisions which control the
behavior of dominant firms will harm users and competitive entrants and that
any relaxation in the regulation of a dominant carrier should occur not when
competition begins or even takes root but only when that entity no longer has
market power (Section 1.3.5); and that petitions for modifying a Code provision
should clearly be acceptable from any party (including users and competitors)
and may propose “stricter” rules to restrain anti-competitive practices. Global
One is also concerned that the proposed standard to grant exemptions to the
Code provisions is too broad and that this provision should not be made
available to dominant carriers to avoid their obligations (Section 1.6.6).
B. Section 2. Classification of Licensees
1. Global One supports a strong distinction between the treatment of dominant and
non-dominant licensees and the resulting regulatory treatment of these two classes
of licensees (i.e., those firms who have both the incentive and ability to exercise
market power (§ 2.2.2) and those carriers that lack market power (§2.2.1)). If
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regulation is generally to be service-by-service, then very clear accounting, non-
discrimination, arms length dealing obligations, other separation requirements and
safeguards must apply where a service provider is deemed to be dominant for
some services and non-dominant for others (Section 2.2.3). Such a policy
recognizes the important fact that telecom companies are generally multi- (as
opposed to single) output firms. Moreover, Global One supports under current
market conditions the establishment in Singapore of asymmetrical regulation for
dominant carriers (such as interconnection, marketplace behavior, reporting
requirements, tariff requirements, duties to negotiate, etc.). Such regulation is
essential for competition to take hold in Singapore. Such a “dual-track” approach
will do much to promote the twin goals of: (a) mitigating a dominant firm’s ability
to engage in anti-competitive conduct; and, at the same time, (b) reducing entry
costs for new firms.
2. Global One also favors the IDA’s decision at the outset to declare Singapore
Telecommunications Ltd. (“SingTel”) as a dominant licensee for the provision of
domestic exchange lines, xDSL, domestic leased circuits and international leased
circuits. (Section 2.3) Without a doubt, SingTel meets and exceeds the criteria of
dominance under current market conditions and, especially as meaningful
restructuring takes time, is likely to meet or exceed these criteria for the
foreseeable future. As such, any contemplation of reclassifying SingTel as a non-
dominant carrier for these services is wholly premature (and indeed inappropriate)
under current market conditions. As explained supra, a premature reclassification
would enable SingTel to likely stymie new entrants’ market access plans, limit
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spillover effects and therefore hinder the very pro-competitive policy goals the
IDA is seeking to achieve.
3. Global One has reviewed the designation of SingTel as a dominant carrier for
international services. While Global one agrees that SingTel is certainly dominant
in the provision of international leased circuits, Global One believes that SingTel
is also dominant in the provision of essential international facilities (IRU capacity,
cablehead access and backhaul). Global One also believes that SingTel is
dominant in the provision of international services such as voice telephony
(IDDD), virtual private networks, frame relay, ATM, IP and others. If IDA
believes that so soon after full liberalization SingTel is not dominant for the
provision of specific international services, then Global One would invite IDA to
present its data and analysis for public comment in the next round of this
proceeding. (See Section 2.3 and Section 1.3.6 on transparency).
4. Global One also would note the draft Code’s generic presumption that a licensee
with a market share of under 50% should be classified as a non-dominant
licensee. As mentioned supra, mere reliance on market shares (especially when
product and geographic markets may be nebulous) may not reveal the whole
story. Instead, Global One would respectfully suggest that the IDA use
economic first principles (such as those factors outlined in Part II above in order
to make a truly accurate determination. For example, for the provision of
international services, a market share of below 50% may still be held by a carrier
with market power if other carriers are employing that carrier’s essential facilities
such as cable stations, earth stations, backhaul or international private lines.
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Also, the market penetration of the contesting carriers, the type and number of
entrants, as well as various carriers’ cost structures must be considered.
5. Global One would caution relying on the concept of potential entry (i.e., supply
elasticities) in an industry that requires substantial capital, time and expertise to
enter a market. The creation of a venture, finalizing a business plan, hiring
experienced staff, obtaining rights of way, IRUs, backhaul, dark fiber or
constructing a network etc. takes time. Typically, this would take well over the
six months noted by the draft in Section 2.5.3 and in related Sections 2.5.3.1 and
2.5.3.2.
6. For services provided to MNCs, it is Global One’s experience that users will
likely not switch service providers for a small price savings. Network availability,
service quality, scope of global coverage, global discounts, contract length, the
very real costs required to plan and switch providers, etc. will make the likelihood
of MNCs switching suppliers in response to minor price increases (demand
elasticities) slight. (See Section 2.5.4)
C. Section 3. Duty of Licensees to End-Users
1. Global One generally supports the duties to end user outlined by the IDA in this
section of the Code. The light regulation of those carriers without market power
and the more robust regulation of those carriers with market power is
appropriate and consistent with IDA’s goals.
2. However, Global One questions the reasonableness of establishing the “filed rate
doctrine” in Section 3.2.2.4 if this approach is to be limited to just dominant
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carriers. If this doctrine is to be part of the regulatory environment then it and
its benefits should be make available to all carriers (i.e., all carriers would be
permitted to file tariffs, including non-dominant carriers). For non-dominant
carriers, tariffs could be filed for all or some of their terms/rates or services as
well as for all or some of their customers.
3. Global One would suggest deleting Section 3.2.3.4 for non-dominant carriers as
the market will regulate service quality and customer care beyond the standards
set by the IDA.
4. As to CSUI (Sections 3.2.4.1. - .3) it is critical that a dominant carrier not share
this often very valuable marketing information among its sales or marketing
divisions. Global One would strongly recommend that Section 3.4.4.2 be re-
drafted to bar any CSUI usage without clear written authorization rather than to
permit broad dissemination unless there is a written limitation. Moreover,
establishing a barring process with a 180 day effective date invites the dominant
carrier to extract and internally share all the relevant marketing data now,
negating any real utility to the CSUI process. If the IDA adopts this section as
now drafted, it should require each dominant carrier to fully disclose each user’s
CSUI but to all other licensees now, at the end of the 180 day period and
thereafter as appropriate. This would be a non-discriminatory and pro-
competitive approach to CSUI.
5. Under draft Section 3.3.2.1, prior to offering a service, dominant licensees must
file a tariff with IDA. The tariff must contain a clear statement of the prices,
terms and conditions on which the service will be offered and, moreover, must
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be self-contained and must not include charges for any goods or services not
subject to tariff regulation. Under draft Section 3.3.2.2, IDA will review the tariff
filing to determine whether the rates are competitive with those in other
jurisdictions, including neighboring countries, newly industrialized countries, and
major financial markets. With seven days, IDA will either accept the tariff (either
by affirmatively granting approval or by taking no action) or reject the tariff.
(This period is shortened to five days for joint promotional offerings or three
days for standalone promotions). If IDA rejects the tariff, it will provide a
statement of the basis for its rejection within 60 days. Once a tariff has gone
into effect, IDA will review it periodically to determine whether the charges
remain appropriate. In addition, any party that believes that a dominant
licensee’s rates are excessive may petition IDA to review the appropriateness of
an existing rate. Such petitions must provide a basis for the petitioning party’s
belief that current rates are excessive.
6. Global One has several concerns about the scope and procedure for the IDA’s
proposed tariffing provisions. Considering the complexities of service costs and
anti-competitive practices, and SingTel’s dominant position in the market, these
very short review periods are simply insufficient for meaningful public review
and comment, and staff review.12 Further, there seems to be little concern as to
whether the service is priced at cost-based levels. Moreover, the draft Code also
12 Moreover, extending the public and comment period will not make it more difficult for the IDA’s staff
to undertake a meaningful review of a dominant firm’s proposed tariffs within the allotted 60-day period. For
example, in the United States, the Federal Energy Regulatory Commission (FERC), also must act on all new
rate filings within a 60-day period under Section 205 of the Federal Power Act. 16 U.S.C. § 824c, However,
interested parties generally get 14 days for notice and comment from the date when notice of the rate filing was
first published in the Federal Register. See. e.g., 18 CFR §§385.210; 385.2009.
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is conspicuously silent as to complaint and appellate procedures for existing and
new tariffs. If the IDA is truly serious about implementing meaningful price
regulation over dominant licensees (i.e., those firms which have the ability and
incentive to raise prices and restrict output above competitive levels), then a better
procedure must be devised.
7. Global One would suggest that all tariff changes proposed by dominant carriers
be cost-based and be submitted with relevant cost, usage and other data. Global
One would also suggest that such tariff changes be filed, placed on public notice,
and be available in full for public review. Thereafter, comments from users and
other licensees would be filed within 30 days. IDA action would occur within 14
days thereafter (i.e., to accept, to reject or to suspend and investigate). Each IDA
action would require a written statement. Public and licensee comments will
greatly assist the IDA staff in evaluating carrier tariffs. Without an open (and
slightly ) longer proceeding, Global One would doubt that tariffs with many
pages of rates, terms, packages, discounts, etc could fully analyzed by IDA staff
within seven, five or three days.12
8. In addition, for new tariffs (as compared to tariff modifications), IDA may want
to extend the tariff review process. To facilitate administrative clarity, the IDA –
similar to the mechanisms used by other regulators – could simply specify that,
the “clock” would not run on any time period until all relevant cost, usage and
other data was filed and placed on public notice and made available in full to the
public.
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9. Under draft Code Section 3.3.3, dominant licensees must provide service on
pries, terms and conditions that are “not unreasonably discriminatory.”
According to the draft Code, this requires that, except where otherwise required
by IDA, any variations in the prices charged to different customers must be
based on objective differences, such as variations in the cost of service.
10. The requirement of strict non-discrimination is a principle which should not be
lightly discarded. Any variations in the cost of services will likely be miniscule
and used by a dominant carrier (e.g., SingTel) to engage in discriminatory or
market segmentation practices to favor itself. Global One would strongly
suggest that the non-discrimination requirement not contain at this time any
loopholes or exceptions. One example would be for SingTel to grant a slight
discount to its “retail division” for the purchase of interconnect services. This
“discount” might be justified on SingTel Retail’s large traffic volumes and use of
existing network connections. Yet, since this discount is rooted in SingTel’s
historical monopoly status, it is inappropriate to grant SingTel Retail this cost
advantage. These concerns extend not only to the pricing between SingTel
“Network” and SingTel “Retail”. Similar concerns are raised on a retail basis
where SingTel Retail sells to end-users.
11. A second competition concern raised by Section 3.3.3 is that it allows dominant
carriers to modify (i.e., lower) their prices to “meet a bona fide offer by a
competing Licensee.” This section essentially permits a dominant carrier (e.g.,
SingTel) to price an offering to a specific customer at any price necessary to
13 When the FCC first established its tariff rules for dominant carriers, such tariffs were filed on 90 days
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retain that customer. This permits SingTel total pricing flexibility, permits
SingTel to price below its costs, permits SingTel to totally control which
customers it keeps and which it loses, and permits SingTel to totally control its
loss of market share by customer and service. While some level of pricing
flexibility for SingTel may be appropriate in the future, the level of pricing
flexibility granted to SingTel in this draft section is excessive and premature.
Global One is not aware of any newly liberalized market, with a serious intent to
regulate dominant carrier behavior, which would grant its ex-PTT monopolist
such pricing flexibility.
12. Under draft Code Section 3.3.4, a dominant licensee must provide
telecommunications services on an unbundled basis. Such Licensees may not
require a customer that wants to purchase a telecommunication service that is
not subject to effective competition to purchase any other product or service as a
condition for purchasing the non-competitive service. For example, a dominant
licensee cannot require a customer that wants to buy exchange line service to
purchase the Licensee’s Internet access service or terminal equipment. Global
One supports this market rule, one which is found in most markets.
13. Global One would note that Section 3.3.4. also allows a customer to purchase a
package of services containing telecommunication services that are not subject to
effective competition and goods and services that are subject to effective
competition at a price that is lower than the separate prices of each of the
component products, provided that the licensee offers the customer the option
notice.
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of purchasing the non-competitive telecommunication service on a stand alone
basis, and does not use revenues from the provision of the telecommunication
service to cross-subsidize the cost of the other components in the package.
14. As with the bona fide offer exception to non-discriminatory and cost-oriented
rates requirement, the ability to bundle “competitive” and “non-competitive”
offerings and to sell such packages “at a price that is lower than the separate
prices of each of the component prices” negates both the non-discrimination
and cost-oriented principles. Again, this proposal essentially eliminates any
oversight and control of SingTel’s market activities and gives SingTel total
pricing flexibility and ultimately total market control. To the best of Global
One’s knowledge, no other newly liberalizing market has given its ex-PTT
monopolist this much pricing flexibility. It would be more appropriate to sell
“dominant” services only per tariff rates and non-dominant services via separate
contracts and at least at price levels above costs, made available to others, and
subject to the ability to resell the service.
15. Taken together, Sections 3.3.3 and 3.3.4 raise serious pro-competitive concerns.
Reading these provisions in the broader context of the entire proposed Code of
Conduct and proposed interconnection/access regime only heightens that
concern. That is, the language currently used in the proposed Code would
provide dominant providers (i.e., SingTel) with so much pricing flexibility so as to
essentially declare SingTel (or its affiliates) to be “non-dominant” for the
provision of services to mid-size and high-volume users. This the IDA must not
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do, for such a defacto (policy) would be in direct contravention of the stated
purpose of the proposed Code of Conduct.
16. Moreover, the overly-generous pricing flexibility contained in these provisions
also raises the ugly specter of legitimizing predatory conduct. According to draft
Section 7.2.1, the IDA sets forth a three-prong test to determine predation:
First, the Licensee is selling its service at a price that is less than the marginal
cost to produce it.
Second, there is a likelihood that such price cutting will drive efficient rivals
from the market (or deter future efficient rivals from entering the market).
Finally, entry barriers are so significant that, after driving rivals from the
market (or deterring entry), the Licensee could impose a sustained increase in
prices high enough to recoup the full amount of the loss that is incurred
during the period of price-cutting.
17. The proposed pricing flexibility provisions would appear to negate the bar on
predatory pricing. SingTel would appear to be able to price below marginal cost,
to control the market in terms of entry/exit of competitors, and to otherwise act
anti-competitively. The last prong – recoupment – may also be evaded under
these sections. Although the IDA notes correctly that telecoms companies are
multi-product firms, the Singapore market is not yet competitive and therefore
cannot constrain a dominant firm’s ability to recoup successfully its predatory
losses. Quite to the contrary, as the IDA itself points out, the majority of
Singapore’s telecoms markets – i.e., domestic exchange line, xDSL, domestic
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leased circuits and international leased circuits (§ 2.3) – are not competitive
precisely because SingTel is blatantly dominant in each of these market segments. Indeed, if
they were competitive, there would be no reason to impose asymmetrical price
regulation on SingTel in the first instance!
18. Accordingly, the real issue becomes one of potential regulatory failure. That is to
say, if a dominant firm can anti-competitively use its economies of scale to
recoup its losses by spreading those losses improperly among its captive
ratepayers via inflated tariffs, then the dominant firm has successfully evaded the
very price regulation designed originally to mitigate its strategic anti-competitive
conduct against its rivals and to protect in the longer term Singapore consumers
as a whole. For these reasons, we are back to square one: the need to constrain
SingTel’s pricing flexibility and the need to carefully scrutinize SingTel’s market
behavior. As Global One explained above, meaningful opportunity for public
comment and review – as well as meaningful complaint procedures – of
dominant firms’ tariffs is quintessential to achieving a truly competitive telecoms
industry in Singapore. It is also a concern to Global One that such one-off
proposals and bundled offerings may not even be subject to IDA review.
D. Section 4. Required Cooperation Among All Facility-Based Licensees to Promote
Competition
1. Global One generally supports the cooperative, interconnection, number
portability and facility sharing requirements of Section 4. Global One would ask
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the IDA to explicitly state that Section 4.11 includes international submarine
cables, cable heads and backhaul facilities. Such facilities are also essential
facilities and are as scarce/unique as poles, towers, ducts and rights of way.
2. Although the draft code provides rules for the negotiation process among
dominant and non-dominant licensees (see draft Code Part 5 – Cooperative
Duties of Dominant Licensees), the draft Code unfortunately lacks any
meaningful enforcement mechanisms for post-hoc breaches of these contracts.
Specifically, under draft Codes Section 4.13.1, licensees have a duty to cooperate,
in good faith, in carrying out the terms of their interconnection agreement and
avoiding unnecessary disputes. If, however, licensees are unable to resolve
disputes regarding the implementation of an interconnection agreement, then
under Section 4.13.2 they may request IDA to provide mediation. While the
proposed Codes states the “IDA will seek to accommodate such requests,
subject to resource constraints…”, draft Section 4.13.3 expressly provides that
“[I]nterconnection agreements are private contracts between the Licensees”, if
the Licensees are unable to resolve any dispute regarding the carrying-out of their
interconnection agreement, “they may [only] seek relief from a court of
competent jurisdiction.”
3. The IDA must understand that while Section 4.13.1 provides that Licensees have
a “duty” to cooperate in carrying-out their interconnection agreements, life in the
real world is not always so harmonious. That is to say, given the dynamic pace of
the telecoms industry, speed to market is a key factor for any firm’s success.
Given the huge amount of money at stake, a dominant licensee has both the
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incentive and ability to engage in some form of strategic, anti-competitive
conduct to delay at any cost a rival’s ability to enter in order to preserve market
share. (Indeed, if a firm makes $1 more in deterrence than it makes via
competition, then the firm will always choose deterrence).
4. As emphasized by Covad in its slides, the dominant carrier’s strategy is simple:
deny, delay and degrade. StarHub’s experience supports this view of SingTel. In
the particular instance, because the dominant firm knows that a civil action will
take time to work its way through the legal system, it will inevitably attempt to
stretch out the process long enough until new entrants run out of money and exit
the market (or limit their activities or opt not to enter). Also of concern to
Global One is the additional mischief of dominant players that most likely will
come right up to the line – but carefully will not cross – of one of the narrow
types of anti-competitive conduct specified in Part 7 (and its concurrent
expedited dispute resolution procedure).
5. Given the above, Global One respectfully suggests that the more effective
mechanism would be for the IDA to create some kind of internal “enforcement”
division or task force and, moreover, some kind of a neutral “rocket docket” in
which these contractual and interconnection disputes could be arbitrated quickly
and efficiently under Section 5.6.1. Global One can think of no better role for
an expert agency charged with the oversight of such a major sector of
Singapore’s growing economy.
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E. Section 5. Cooperative Duties of Dominant Licensees
1. Section 5 includes a number of elements critical to the development of competition
in the Singapore market. Interconnection requirements and rules are at the heart of
any liberalization. As such, Global One would suggest that the RIO be made public
and subject to public comment. This is consistent with Global One’s suggestion
above that the review process for tariffs filed by dominant carriers include a
reasonable period for public review and comment. Public input will help the IDA
understand that tariff’s nuances and result in more pro-competitive, cost-oriented
interconnection arrangements. Section 5.2.2 should be written so as IDA “shall”
(rather than “may”) seek public comment. Greater transparency is not only good
public policy but is a requirement of the WTO Reference Paper.
2. In view of the preference to have interconnection tariffs, Global One wonders why
interconnection agreements with dominant carriers would be subject to a
confidentiality requirement. Such a requirement encourages discrimination and can
only be described as anti-competitive. Global One therefore questions, from its own
experience and from the principles of the draft Code, why Section 5.3.1.3 is written a
to mandate confidential agreements. To the contrary, these should be public (i.e.,
IDA should not permit dominant carriers to limit the flow of information on this
critical topic). Similarly, the non-discrimination requirement found in Section 5.5.1
would be undermined by broad confidentiality requirements.
3. Under Section 5.6.1 of the proposed Code, if the Licensees have not reach a
mutually acceptable voluntary interconnection and/or access agreement within 90
days of the date on which the Requesting Licensee submitted its initial request, the
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requesting Licensee may (but is not required to) file a request for dispute resolution
with IDA. Under proposed Section 5.7.2, the IDA will seek to complete the dispute
resolution procedure within 90 days. Moreover, to the extent parties have not
reached an agreement, the IDA will impose, among other things, the following
minimum terms: Non-discrimination (§ 5.8.1); Interconnection at and Technically
Feasible Location (§ 5.8.2); Provision of Unbundled Network Elements (§ 5.8.3);
Switching (§ 5.8.3.3); Inter-Office Transport (§ 5.8.3.4); Signaling (§ 5.8.3.5); OSS
(§ 5.8.3.6); Directory Assistance and Operator Services (§ 5.8.3.7) and Public
Emergency Call Services (§ 5.8.3.8). These are critical requirements for new entrants.
Global One strongly supports these requirements and would note that these
requirements are similar to those require in other developed markets (e.g., USA and
EU). Global One would favor shortening these time periods. Once a RIO is
approved it is likely that transport and non-discriminatory interconnection
arrangements generally can be completed more quickly simply by the new carrier
ordering interconnection services per SingTel’s interconnection tariffs.
4. Global One applauds the IDA for recognizing that dominant and non-dominant
licensees clearly have different degrees of bargaining power during the negotiating
process – i.e., incumbent monopolists have 100%; new entrants have 0%. Global
One supports both IDA’s arbitration and prescription procedures (preferably with
shorter time periods) and minimum terms outlined above. As stated above,
however, it would be very helpful if the IDA would explicitly state that these
provisions apply equally to international service as well. Further, Global One would
suggest that IDA review in an expedited manner all parts of an agreement submitted
to it for arbitration. It is appropriate to “re-open” an issue if IDA believes an item
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has been resolved in a way that may reflect anti-competitive intentions or negotiating
leverage (See Section 5.7.1).
5. Global One would suggest that SingTel not be allowed to use its negotiating power
to dilute the Section 5.8.1 non-discrimination requirement. The non-discrimination
requirement is paramount; no non-dominant licensee should be “forced” to “agree
otherwise” to surrender this right in negotiations with a dominant carrier.
6. Section 5.8 in which “IDA will impose the following minimum terms” is critical and
should not be deleted or diluted. In fact, it could be strengthened by having a very
strong RIO, shortening the prescription period so that the process is not used by
SingTel to deny, delay or degrade entry, and the minimum terms should be
expandable on a case-by-case basis.
7. The draft Code contains several important pricing provisions. At the outset, Section
5.8.4 provides that “[u]nless the parties agree otherwise, a dominant licensee must
allow requesting licensees to purchase, at wholesale rates, any telecommunication
service that the licensee provides to end-users at retail rates.” The draft Code goes
on to say that pricing will be established by using a methodology based on
incremental forward-looking costs (“FLEC”) (§ 5.8.8.2), but that interim pricing –
specifically, until 31 March 2003 – for interconnection and access will be based upon
the charges set forth in Appendix II.
8. Global One is pleased that the IDA is requiring dominant firms to sell at a wholesale
rate any telecommunication service that the Licensee provides to end-users at retail
rates. This provision, coupled with the specific provisions contained in Part 7 of the
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proposed Code, hopefully will do much to mitigate potential price squeezes (§ 7.2.2)
and other strategic vertical behavior. Section 5.8.4 is one of the most important
provisions of the code in ensuring competition but must be enforced in such a way
as to create a real and sustainable difference at the retail and wholesale price levels.
9. Global One’s specific comments regarding the IDA’s overall pricing proposal will be
filed in the second round of comments once draft Appendices I and II are published.
Nevertheless, Global One would note the “Best 3” (or “Low 3”) interconnection
pricing model from the EU and the USA’s evolving rates per its adoption of a LRIC
methodology. It has become increasingly clear that interconnection should be based
by some type of LRIC methodology, should not subsidize dominant or inefficient
providers and should not be used to restrict or control competition.
10. Global One is not yet convinced that the interim pricing proposals need to be in
effect until 31 March 2003. First, costs are declining and any rates which are
proposed to last for 2 – 3 years need to include an efficiency “X” factor. Otherwise,
SingTel will likely be unreasonably enriched. Second, it is hoped by Global One that
a cost study could be finished in less than 2 – 3 years, although it is recognized that
such a cost proceeding (if undertaken) will take substantial time.
11. Global One sees little need, when interconnection agreements are published by the
IDA under Section 5.10, to withhold from publication parts of an agreement. With
public RIOs and tariffs, Global one questions whether dominant carriers might use
this proviso to keep useful interconnection information secret and thus retain their
negotiating leverage. Global One would therefore suggest that any confidentiality
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request by a party under this section by closely scrutinized and that such a moving
party have the burden to show disclosure would not be in the public interest.
F. Section 6. Special Provisions Governing the Sharing of Essential Facilities
1. Under Section 6 of the draft Code, the IDA sets forth special provisions
concerning the sharing of “essential facilities.” According to draft Section 6.4.1,
however, a License requesting the right to “share” telecommunication
infrastructure controlled by a rival must demonstrate “more than that allowing it
to share the facility would reduce its costs, or increase the speed with which it
could deploy service.” Instead, the draft section sets forth a five-part test that a
rival must demonstrate, on a case-by-case basis, to show that a particular facility
is “essential”:
(a) the infrastructure is required to provide service;
(b) an efficient new entrant would not be able to replicate the infrastructure
within the foreseeable future at a price that would allow profitable market
entry;
(c) the Licensee that operates the infrastructure has sufficient capacity to share
with the requesting Licensee;
(d) the Licensee that controls the infrastructure has no legitimate business
justification for refusing to share the infrastructure with other Licensees on
reasonable and non-discriminatory terms; and
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(e) that failure to share the infrastructure is limiting competition, to the
detriment of consumers.
2. Global One understands the balancing act which may accompany the use of the
essential facilities doctrine. Yet, Global One submits that broad access to
bottleneck facilities under the essential facilities doctrine is necessary to promote
competition and maximize consumer benefits. Global One believes that access
to essential facilities generally promotes competition and consumer welfare, and
that such access should be prescribed under reasonable terms absent a clear
showing of harm by the owning operator. Global One believes there are several
problems with the draft Code’s current essential facilities analysis.
3. First, the initial test is that the infrastructure be required to provide a specific
telecom service. Global One would suggest that this be modified to include one
or more services (generally). In the case of submarine cable capacity or cable
head access, all of a competitor’s services should be able to use these essential
facilities. Global One can see no reason to make a determination on a single
service or to limit the use of the essential facility to a particular service.
4. Second, the replication test needs to be both pragmatic and sensitive to real
market conditions. While almost all facilities could be replicated for some
amount of money over some period of time, the dynamics and cost sensitivity of
the telecom market must be recognized. A “foreseeable” period must reflect
these factors. A delay in market entry of 3 – 6 months might seriously and
adversely affect a new entrant’s ability to successfully compete in the market.
Time to market and early entry (i.e., “first mover”) are critical in today’s telecom
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markets. Not surprisingly, the entity the controls/owns the essential facility will
very likely be the entity with whom the new entrant will compete. The incentives
of the essential facility holder are therefore clear.
5. Similarly, it is likely that profitable market entry will depend on several factors. If
a new entrant had the burden to show that its entry would not be profitable
without access to a particular essential facility, it may not be able to meet the
burden. Product development; operations and network; billing, back-office and
customer care; sales and marketing; and general overhead are all significant cost
areas. Would denying access to an essential facility clearly deny profitability? Or
is it some other cost center of the new entrant? And what about a new entrant
which will not (by plan) be profitable for 3 – 5 years, can such a licensee meet by
definition a profitability test? A preferred showing would be one that involves a
demonstration of measurable higher costs and harm to competition/users.
6. Third, the existence of sufficient/excess capacity is often a difficult issue. If the
dominant carrier suggests that it has no excess capacity, the question becomes
whether that is a strategic position or one clearly based on current traffic levels,
predictable traffic growth, market trends and evolving technology. In the area of
submarine cables, the analysis would look at the dominant carrier’s demand
forecast, other (perhaps less biased) forecasts of the dominant carrier’s
demand/usage of the essential capacity/facility, multiplexing options, cable
system upgrades, planned new cable systems, other cable and satellite options
available to the dominant carrier, and the specific amount of capacity requested.
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7. Fourth, Global One is very concerned that the provisions contained in draft
Section 6.4.3 constitute such a significant loophole that access to essential
facilities may become a mere dream. As noted above, draft Section 6.4.3
provides that it is a “legitimate business justification” for a dominant licensee to
deny rivals access to an essential facility simply by providing some level of
evidence that sharing would create a disincentive for it to upgrade its facilities
and infrastructure. Monopolists around the world have raised this cynical
defense repeatedly by arguing that any sharing would upset their three or five
year business planning cycle, discourage investment, etc. While regulators in
developed countries have summarily rejected this argument and this aspect of the
essential facilities test, it is very troubling that IDA is proposing such a test here.
The IDA should not include this test, particularly since it not only easily allows
SingTel to defeat a legitimate request but disregards the fact that SingTel would
be reasonably compensated for the use of such facilities. This actually reduces
any financial risk to the essential facility holder. SingTel is not required to
anticipate the demand of new entrants, just to make its essential facilities
available in order to promote competition.
8. The legitimate business purpose of this test as proposed is quite broad. This test
should really be one of direct, immediate and substantial harm to the essential
facility holder (other than being in a more competitive market) if access is
provided under reasonable terms and rates. In reality, access creates new
revenues for the essential facility holder and thus both promotes competition
and helps the holder’s bottom line.
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9. Global One is also concerned with the draft Code’s ad hoc approach to access –
i.e., that new entrant must make a filing each and every time they seek access
from the dominant licensee. Such a process unduly burdensome, and will do
much to stymie – rather than accelerate – new entry by increasing new entrants’
transaction costs.
10. Finally, Global one questions why the IDA – as a regulator charged with
developing a policy paradigm for a long-term market structure – would even
consider using such a narrow/limited approach to essential facilities access in the
first instance. As highlighted above, the dual-role of the IDA is both (a) to
mitigate dominant firm’s ability to engage in strategic, antic-competitive conduct
and (b) to find ways to remove residual barriers to entry. Thus, rather than use
test with very high and harmful hurdles on an ad hoc basis, Global One
respectfully suggests that the IDA instead alter its analysis to determine where
the lack of access to individual segments of the network – under current market
conditions – would constitute a “policy-relevant” barrier to entry and require pro forma
access accordingly.14
11. To determine whether a particular structural characteristic is a “policy-relevant”
barrier to entry, policy makers should engage in a cost-benefit analysis that
identifies, inter alia: (1) all possible economic inefficiencies that result from the
presence of the barrier to entry; (2) all offsetting economic efficiencies that might
14 A classic example of a policy-relevant barrier to entry can be found in the market for multichannel
delivered video programming. On one hand, ESPN, CNN, HBO or Showtime appropriately should not be
considered to be an “essential facility” under the antitrust laws. Yet, without these popular channels, new
entrants will find it extremely difficult to establish a viable, rival distribution system for deliver multichannel
video programming. As such, the United States Congress in the 1992 Cable Act required, inter alia, parties to
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be attributable to the barrier to entry, if any; (3) all relevant positive and negative
network externalities; and (4) the estimated economic cost of eliminating the
barrier to entry or minimizing its effects. This review is appropriate since one or
more firms are capable of successfully exercising market power (charging
monopoly prices or restricting output) for a sustained period of time and
additional entry is unlikely.
12. There are numerous advantages to such an approach. First, the proposed
approach is not static, and the IDA can always revisit its analysis as market
conditions change. Second, it reduces transaction costs for new entrants as it
simplifies access procedures and gives certainty to the market. Third, it creates a
pro-competitive bias in favor of access. Finally, such an approach would
dramatically reduce the administrative burden on the IDA’s limited staff
resources.
13. Using the above criteria, it is clear that numerous policy-relevant barriers to entry
exist under current market conditions in Singapore. Among other things, current
policy-relevant barriers to entry include, but certainly not limited to: the lack of
access to the local loop and backhaul facilities, the lack of cost-based and timely
interconnection, the lack of timely and cost-based collocation in central offices
and submarine landing stations. A policy-relevant barrier approach would
promote new entry and help achieve meaningful restructuring. IDA should
therefore alter its analysis to determine where the lack of access to individual
segments of the network – under current market conditions – would constitute a
an exclusive programming distribution contract to demonstration that such contract is in the public interest.
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“policy-relevant” barrier to entry and require pro forma access to those barriers
immediately under reasonable terms and conditions.
G. Section 7. Abuse of Position by a Dominant Licensee
1. As stated above, the second major prong of any regulator’s mandate is to ensure
that dominant firms are not able to engage in anti-competitive conduct. The
draft Code recognizes this important principle, stating explicitly in Section 7.1
that “dominant firms must not use their economic position to act in a manner
that can impede competition.” As identified by the IDA, such impermissible
conduct by a dominant licensee includes: pricing abuses (§ 7.2); predation
(§ 7.2.1); price squeezes (§ 7.2.2); attempts to foreclose competition in adjacent
markets (§ 7.3); cross-subsidization (§ 7.3.1); and access discrimination (§ 7.3.2).
2. Where such anti-competitive conduct occurs, the draft Code provides that the
IDA (either on its own motion or at the request of a private party) may initiate
an enforcement action pursuant to the procedures set forth in Section 10 of the
draft Code. If the IDA determines, based on the preponderance of the evidence,
that the Licensee has failed to act in accordance with the requirements of the
Code, them the IDA may impose sanctions (§ 10.2.3) that are proportional to the
severity of the contravention. (§ 10.2.4). These sanctions and remedies include,
in order of severity: warnings (§ 10.3.2.1); Orders to Cease and Desist (§
10.3.2.2); monetary sanctions with a base penalty of $100,000 up to a maximum
of $1,000,000 per contravention (§§ 10.3.2.3.-10.3.2.3.); and the suspension or
revocation of a Licensee’s license.
See 47 U.S.C. § 548.
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3. Although Global One is encouraged by the IDA’s tough words on mitigating
anti-competitive conduct by dominant licensees, Global One also has concerns
about the efficacy of the IDA’s proposed enforcement measures nonetheless.
While the IDA is correct to hold that any punishment must be proportional to
the impermissible conduct (see § 10.4.2) the enforcement must be meaningful as
well. In other words, the fear of substantial punishment must be so great as to
curb effectively the dominant firm’s incentive to engage in anti-competitive
conduct against its rivals. Unfortunately, Global One respectfully submits that
the provisions contained in the draft Code may not be substantial enough to
deter anti-competitive behavior.
4. For example, the threat of warnings or cease and desist orders, while
constructive, does little to mitigate any entrenched monopolist’s strategic
behavior in the long-term. In fact, it may lead a dominant carrier to believe that
it can engage in an anti-competitive practice at least once “for free” since the
likely enforcement activity may at worse be a penalty free warning or cease and
desist order. Similarly, imposing penalties of up to $1,000,000 per contravention
– although extremely significant for most entities, may not be sufficient to
discourage an entrenched monopolist. As Global One pointed out earlier, if a
firm believes it will make (or save) $1 more in deterrence than it will by
competition, the firm will always choose deterrence. Accordingly, Global One
respectfully submits that the IDA consider using warnings or cease and desist
orders only for non-dominant carriers or only for very minor infractions by
dominant firms. Global One would also suggest raising the proposed penalty for
dominant carriers Code violations to such a level that the threat of meaningful
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enforcement is foremost in the mind of the dominant licensees as they go about
their daily business. After all, if they do nothing wrong, then they should have
nothing to fear.
5. In draft Section 7.2 it is proposed that once the pricing requirements of Section 3
and 5 are met, the IDA will not subsequently review prices. Global One is
perplexed by this position as it can find no obligation or duty of a dominant
carrier in Section 3 and 5 that should change merely because a tariff/price has
gone into effect. Not only should the dominant carrier’s duties not change, but
price levels for services in which a carrier is dominant should always be subject
to review and complaint as costs and other factors change. Global One would
request that IDA delete this proposed Code section or at least more clearly
indicate under what circumstance prices of service provided by dominant carriers
will not be reviewed and that all conduct prohibitions still apply.
6. As to predatory pricing, the test proposed in draft Section 7.2.1 may be too
difficult for the IDA or new entrants to prove. The first part of the test requires
the determination of the dominant carrier’s marginal cost. Determining marginal
cost is a difficult task. Having to rely on cost data submitted by the party
accused of anti-competitive activities is troublesome.15 The second prong of the
test is also problematic. An absolute measure such as driving an efficient
competitor from the market or detering future entry is too black and white.
What if the practice harms a rival in a critical market segment but does not cause
15 As an aside, this is another reason for tariffs and other cost related data to be fully public and open to
public/carrier comment. If an issue like predatory pricing subsequently arises some data will already be
available although current and specific data should no doubt also be obtained.
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market exit? Is this not predatory and harmful? And what if the practice delays
or modifies the market entry of potential competitors but does not prevent
market entry? Is this also not harmful to competition and users? As to
recoupment, as noted above, this can occur not only in the specific market
sector/services in which predatory pricing occurs but also may occur in less
competitive market/services areas.
7. The same concerns apply with equal force to potential price squeezes by
Dominant Licensees. That is to say, Section 5.8.4 correctly provides that
“[u]nless the parties agree otherwise, a Dominant Licensee must allow
Requesting Licensees to purchase, at wholesale rates, any telecommunication
service that the Licensee provides to end-users at retail rates.” To mitigate a
potential price squeeze in the purchase and subsequent use of such a service,
Section 7.2.2 provides that a Dominant Licensee that provides an input used by
“down-stream” Licensees, including an affiliate of the Licensee, may not sell the
input to non-affiliated down-stream Licensees at a price that is so high that the
Licensee’s down-stream affiliate could not profitably sell its product if it were
required to incur the same cost to obtain the input as do its non-affiliated
competitors.
8. Global One very much supports the inclusion of a bar on price squeezes. Price
squeezes can occur form two directions: either the retail/wholesale differential is
too narrow (and thus with other costs included the competitor’s total costs are
too high to compete with the dominant carrier on the retail level) or the
retail/wholesale differential is satisfactory but the dominant carrier then opts to
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price below its total costs and thus squeezing the competitors. In either case, the
IDA must vigilantly guard against price squeezes.
9. As to the proposed Code section, Global One would note that a broad
understanding of service costs will be necessary to determine whether the
wholesale price levels are appropriate. Moreover some level of cost analysis and
modeling may be necessary. Further, because SingTel has the ability to raise
prices and restrict output for nearly all telecoms and broadband services, the
IDA must be sensitive to a regulatory price squeeze where a dominant carrier
attempts to game the tariffing process between its wholesale and retail rates.16
10. Given the above, if a dominant firm’s downstream affiliate will be required to
purchase its key inputs at the same forward-looking cost based rate as new
competitors must, then it again becomes critical to carefully scrutinize SingTel’s
proposed tariffs via pubic comment and review.
11. Global one supports the draft code language found in Section 7.3, 7.3.1 and
7.3.2.
H. Section 8. Agreements Involving Licensees that Unreasonably Restrict Competition
1. Global One supports the establishment of rules which bar agreements that
unreasonably restrict competition. Such rules are common in most markets
where Global One operates (both generally and through license conditions).
16See, e.g., City of Mishawaka v. American Electric Power Co., 616 F.2d 976, 983-84 (7th Cir. 1980), cert.
denied, 449 U.S. 1096 (1981).
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There is a great deal of USA and EU case law on this issue and Global One
would invite the IDA to generally follow these precedents.
2. Agreements which involve carriers that are dominant for the provision of a
relevant service obviously need to be particularly scrutinized. Such a review
could include not only the impact of the proposed agreement but the
circumstances leading up to the formation of the agreement itself (e.g., was there
any coercion by the dominant carrier). Global one would not be inclined to use
specific market shares or a number of licensees as absolute thresholds (See
Section 8.4.1 and 8.4.2) although such thresholds can very much help licensees in
assessing IDA’s probable reaction to an agreement. The key issue is all such
agreements should be analyzed based on their competitive effects.
3. Global One would generally suggest that agreements among carriers to build a
submarine cable would fall within the range of acceptable multi-party agreements
per Section 8.3.5. At the same time, particular provisions within a cable
agreement could be found objectionable by the IDA if they limited competition.
Such provisions might relate to capacity transfer, cable station access, backhaul,
wholesale or retail pricing matters, etc.
I. Section 9. Consolidations by Licensees that are Likely to Restrict Competition
1. Consolidations are a common occurrence in dynamic industries such as the
information/telecom market place. IDA approval of such transfers is logical
from a competition law approach.
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2. The issue of market power and concentration in dynamic markets might not be
best analyzed only under an HHI approach. This is particularly true where a
dominate carrier's market share alone would exceed 1800 and perhaps bar any
merger between non-dominant users. Global One supports the qualifying
language found in Section 9.4.2 and 9.4.3 as it would not likely bar non-dominant
carriers from merging. Global One also supports the IDA having the ability to
impose a full range of safeguards (See Section 9.5).
3. As to procedure, Global One would suggest some type of automatic grant for
mergers of non-dominant carriers or some other streamlined process. The
concern is that a transfer of control or merger which clearly did not raise
competition concerns would languish within a resource limited IDA until an
approval letter/order was received. A streamlined process may also de-politicize
the process.
J. Section 10. Enforcement of the Competition Code
1. Global One supports the establishment of an enforcement mechanism that is
swift, predictable and effective in its control of anti-competitive conduct. At the
same time, the mechanism should recognize that non-dominant carriers often
have limited resources available to ensure compliance with the complex scope of
rules. Where such situations exist (and the violations do not impact competitive
issues), Global One would suggest that the IDA exhibit substantial
understanding and patience.
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2. As indicated in Section G above, abuses by dominant carriers need to be dealt
with severely as they likely impact the competitiveness of the market and harm
both competitors and users. Otherwise, Global One generally supports the
provisions of the draft code in this Section.
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IV. Comments Regarding the Interconnection and Access Economic Framework
A. Introduction General Framework
1. Interconnection, with very few exceptions, is the provision of an essential,
bottleneck service by a dominant carrier to other market participants. The
interconnection service (e.g., local access for originating and/or terminating
service) often represents the ultimate essential/bottleneck service. To promote
the development of a robust information/telecom sector that is driven by
consumer demand and market forces, it is critical that interconnection be
provided on non-discriminatory, cost-oriented, unbundled, and otherwise neutral
terms.
2. Global One would emphasize that interconnection policies should be neutral in
their approach as to how a requesting licensee (e.g., a new entrant) has
envisioned its business, responded to users and reacted to market forces, opted
for a broad market access or a market niche business, identified a resale or
facilities entry approach, chosen a technology or created a cost structure. None
of these new entrant business decisions effect the cost, quality or provisioning of
interconnect services by dominant carriers.
3. Global One favors (as does the Code of Conduct) technology neutral, non-
discriminatory and cost based interconnection tariffs. Global One finds these
critical principles at odds with a proposed approach based on commercial
negotiation between entities with very different incentives and negotiating
leverage. Global One cannot envision IDA forbearing from regulating
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interconnection or relying on vague price floor and ceilings which may be
strategically engineered as long as that service is provided by an
essential/bottleneck facility holder (but see Sections 2.2 and 2.3). Nor can
Global One support an interconnect policy that favors one
technology/infrastructure (i.e., broadband) over another, or facility entry over
resale entry, etc. Interconnection must be a neutral, cost-based, non-
discriminatory offering. The cost of interconnection is simply not dependent on
the business plan, entry mode or identity of the purchasing licensee. Therefore,
prices for interconnection should not be based on these factors. The one area
where commercial negotiations with differing prices might work, but still with
recourse to the IDA, is such arrangements between non-dominant carriers.
4. Formulating the correct interconnect pricing policy is perhaps the most difficult
task for any regulator. First, the IDA must make sure that any rates prescribed
must be cost-based. Interconnection rates must not permit the dominant
incumbent to receive “creamy returns” (i.e. monopoly rents).
5. The second and more difficult challenge for the IDA is to decide which type of
pricing methodology – i.e., long-run incremental costs (LRIC); long-run average
incremental costs (LRAIC); fully-distributed costs (FDC); the efficient
component pricing rule (ECPR); or stand-alone costs (SAC), etc. – will best
achieve its long-term policy objectives of promoting entry and successfully
restructuring the Singapore telecoms market from monopoly to competition.
Moreover, once a methodology is selected, the IDA must then choose a standard
upon which it will base its cost study – i.e., historical or embedded costs; current
or replacement costs; or forward-looking economic costs. Indeed, because
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regulation is not a homogeneous tool, each type of pricing methodology and cost
basis has different pros and cons associated with it, and each choice will produce
a different societal outcome.
6. As explained below, Global One generally concurs with the IDA’s proposal to
use FLEC as a charging standard and LRAIC as a cost standard. As telecoms is
a declining cost industry, such policies will do much to promote new facilities-
based entry. Global One’s specific answers to the questions posed by the IDA’s
in its interconnection and access consultation document are found below.
B. Specific Comments
Question 1: What is the appropriate regulatory framework to stimulate
competition in the provision of broadband local access and
interactive broadband multimedia services, including interconnection
with and access to the broadband infrastructure and services in
Singapore, and how this would benefit the deployment of broadband
local access and services, and whether inter-network competition is
likely to develop without such regulation?
1. Global One believes that, as a general proposition, the IDA has set forth a useful
framework to stimulate competition in the Singapore telecommunications
industry. Global One respectfully submits, however, that the IDA not be so
“broadband” centric in its analysis. After all, there is far more to the telecoms
business than just xDSL.17 Global One would of course agree that broadband
access is important. However, Global One would strongly suggest that IDA
leave the development of local networks to market forces and technological
17 To wit, as explained in its application to be a facilities-based operator (FBO) in Singapore, Global
One will compete for users with international requirements based on its scope of services, global reach,
network availability and reliability, customer care and price. As such, Global One intends to acquire and
operate its own international facilities (initial ownership as in APCN-2 and/or IRU ownership as in existing
cable systems) but may also construct its own backhaul, build or buy a terrestrial like to Malaysia, deploy local
loop, use satellite links, etc. These decisions will be made as the market develops and depend in part on
SingTel's actions (e.g., IRU availability and pricing, backhaul pricing and interconnection offers). Global One
will keep IDA informed regarding these developments.
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advancements/options, and to resist the temptation to centrally manage or
coerce the market. In addition, such market “engineering” is ultimately
inefficient and will only lead to conflicts with the more neutral Code of Conduct.
2. As explained in part II above, entry will only occur if a firm believes that such an
endeavor will be profitable. For this reason, new entrants always tend to go after
those segments of the market with the highest revenue potential initially. In the
past, the greatest source of revenue was often high-volume business users.18
Thereafter, carriers quickly move to middle and small size entities. In contrast,
for residential or SMEs, revenue potential based on existing technology has not
been as great. (Indeed, after visiting SingTel’s web page, basic service ranges
from $16.33/month to $20.00/month, depending on the amount of value added
services included in the package.) Thus, considering the huge fixed and sunk
costs associated with the telecoms industry, facilities-based competition for
residential or SME users has not occurred simply because entry into these sectors
of the market has not been attractive.
3. So how might the IDA encourage new facilities-based entry in this situation?
First, it must raise the revenue potential. Thus, with the advent of “broadband”
(e.g., xDSL), a loop worth an average of only $18 is now transformed into a loop
potentially worth $138 (e.g., $18 line rental + $120 for 60 hours of xDSL service),
18 Global One is confused by the IDA’s use of the derogatory term “cherry picking” in Section 2.4 of
the interconnection paper when referring to firms’ aggressive efforts to provide small and medium sized users
with the most cost effective and technically advanced services possible. The focus on these users is actually the
opposite of the traditional view of cherry picking and should very much please the IDA. As to CLEC entry in
the USA, it has been relatively slow and not directed toward a narrow group of users. Unlike the traditional
view of "cherry-picking" which involves the narrow marketing to large users, the consultative document
appears to see "cherry-picking" here as the broad marketing to small and medium size users. This is not
cherry-picking but does reflect the type of broad market entry strategy that the IDA should applaud. (In any
event, Global One sees cherry-picking as a relatively minor issue.)
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thus raising revenue potential and concurrently making entry more attractive.19
By opening up markets via unbundling, interconnection etc., new firms will now
create new “non-incumbent” demand for broadband services.
4. Creating this new non-incumbent demand is only the first step, however. The
next step of the process is for some firm (either on a vertically integrated or on a
wholesale “Alternative Distribution Company Basis” (ADCo) – i.e., a “carriers’
carrier” on the line side of the switch) to enter, consolidate and serve this new
non-incumbent demand.
5. Regardless of how much demand is created, the IDA must still remove other
residual barriers to entry, including, inter alia, timely interconnection at cost-based
rates, meaningful review of dominant firms’ tariffs, pro forma access to policy
relevant barriers to entry, meaningful and swift punishment of anti-competitive
conduct, etc. If such barriers are not removed the market will become a “static,
incumbent centric perpetual resale model.” Accordingly, the IDA’s inquiry must
not be centered exclusively (although admittedly important) on access to
broadband per se, but rather on removing all barriers to entry (and concurrently
reducing entry costs) for all firms to permit this two-stage process to occur.20
Question 2: Should the IDA require access to all broadband networks; specifying only ceilings
and floors as guidelines for interconnection charges; and revising the Code to reflect
market, industry and technology changes on a periodic basis?
1. Question 2 posits several discrete questions. First, Question 2 asks whether the
IDA should require access to “all broadband networks.” However, what exactly
19 Figures based upon SingTel’s (date) published offers for its “Magix” ADSL service.
20 As stated supra, Global One’s decision to sink capital into alternative network facilities will be made
as the market develops and depend in part on SingTel's actions (e.g., IRU availability and pricing, backhaul
pricing and interconnection tariffs).
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is a “broadband network”? With the advent of xDSL, has the traditional copper
loop been transformed into a “broadband network”? Similarly, is an undersea
cable – which is capable of transmitting data at terabits per second – a
“broadband network”?
2. As Global One explained above, the IDA should move away from semantics and
should instead identify, and then require immediate pro forma access to those
segments of the network that constitute policy-relevant barriers to entry. As
further explained, under current market conditions in Singapore, policy-relevant
barriers to entry today include, but certainly are not limited to, dominant firms’
control of local access facilities, central offices, and cable landing stations.
3. The next issue posited by Question 2 is whether the IDA should specify only
floors and ceilings for interconnection charges. The answer to this question is
no. Global One realizes that with the IDA’s limited resources, the ability to
conduct effectively an in-depth analysis of dominant firm’s cost of service rate
base may be unduly burdensome at this time. As such, Global One would
suggest that the IDA adopt some sort of price cap based upon an average of the
lowest three (“Low-3”) interconnection rates of other developed countries. For
each of the various services to be rendered (e.g., local loop rate, interconnection
for single transit, interconnection for double transit, etc.) Such a regime has been
successfully adopted by the European Community, and would probably serve the
Singapore telecoms sector well. This approach should provide usable surrogates,
can be implemented quickly, is related to costs and cannot be strategically
manipulated by SingTel. In fact, as it is probable that SingTel’s costs are below
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those of European carriers with large rural areas, even the “Low-3” rates may be
reduced by IDA upon review.
4. Notwithstanding the above, however, Global One again reminds the IDA that
any tariffing procedure the IDA adopts must be meaningfully enforced. Indeed,
regardless of the exact approach adopted, the entire effort will be a self-defeating
exercise if the IDA is unable or unwilling to constrain a dominant firm’s ability
to exercise market power by raising prices above competitive levels.
5. As to the risk of deploying new and advanced technology, there should be no
requirement that SingTel do this. If SingTel does deploy new technology,
customers will continue to use its services (all else being equal). If SingTel opts
not to deploy new technology, customers will migrate to those entities who do.
As to interconnection services, the risk to SingTel of stranded investment is close
to zero as these are bottleneck services with no real across the market
alternatives. Interconnection should remain a cost based service. It is not a
service which needs to include some vague risk premium.
6. Global One supports the implementation of cost based services by all carriers.
At the same time, Global One recognizes that alternative, interim solutions by
non-dominant carriers may be useful. Global One does not support any
discrimination in interconnection charges due to a carrier's choice of entry
strategies (e.g., facility v. resale entry), investment levels or other artificial
mechanism all of which are unrelated to the dominant carrier's cost of providing
the service. Ordinarily, the market will drive service providers away from resale
and toward facility entry. There is no need for the IDA to coerce or manage the
market or a particular segment of the market in this fashion. Such an approach
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no longer finds significant support in either the US or EU markets. Again, the
approach favored by the consultation document appears to conflict with the
more pro-competitive draft Code of Practice.
7. Finally, the IDA asks whether it is appropriate to revise its Code to reflect
market, industry and technology changes on a periodic basis. The answer to this
question is easy: Of course it should. Regulation has both costs and benefits.
Thus, while one regulatory regime might be appropriate for a market
characterized by monopoly, this same regime might be wholly inappropriate for a
market characterized by competition. The key, therefore, is for policymakers
always to tailor their regulation to fit the market, rather than seek to have the
market fit the regulatory regime.
Question 3: Is there a need for reciprocity in interconnection arrangement between
infrastructure providers, and between infrastructure providers and service
providers; and whether non-reciprocity arrangements are more appropriate and
under what circumstances?
1. As a general matter, symmetrical charges are only efficient is there is a
corresponding rough symmetry in costs or traffic flows. When one firm is
dominant and controls the ability for others to terminate a call (e.g., SingTel),
however, symmetrical charges can harm consumer welfare. Given current
market conditions in Singapore, Global One supports the IDA’s proposed
use of asymmetrical charges at this time. Global One agrees with the IDA
that use of asymmetrical charges at this time will ensure “that all types of
infrastructure are adequately compensated for providing interconnection.”
However, such rates should be cost based. Absent a cost showing, it would
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not be unwise to allow non-dominant carriers to price no higher than
SingTel’s rates.
Question 4: Should the IDA impose asymmetrical charges based on the cost structures of the
different technologies in use in the broadband interconnection arrangements and
if there are other arrangements that may be more appropriate and if so, under
what circumstances?
1. Although the IDA is considering revisions that would allow for differential
charges for different classes of operators, the IDA concedes that this
proposed approach “may not be consistent with the principle of cost
orientation, as the cost of providing interconnection related services is the
same whether the interconnecting party is a value added service provider or
another facilities based operator.” Global One respectfully reminds the IDA
that interconnection, as an overarching principle, should be cost-based and
non-discriminatory. This is a key principle of the draft Code of Conduct and
is a principle that should not be distributed. The IDA must start with cost-
based and non-discriminatory interconnection charges. Asymmetrical
charges which are different due to cost differences may be appropriate if
based on real cost differences of efficient carriers. The market place will
then drive carriers (generally) away from resale entry and toward facility
entry. But this needs to be driven by the market and investor views of the
market; it ought not to be coerced by regulators. In addition, Section 2.2 of
the Regulatory Reference Paper to the WTO Agreement on Basic Telecoms
Services requires that all interconnection rates for Member Countries
(including Singapore) must be “cost-oriented rates that are transparent,
reasonable, having regard to economic feasibility, and sufficiently unbundled
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so that the supplier need not pay for network components or facilities that it
does not require for the service to be provided.” (Emphasis supplied.) To
contemplate otherwise, would not be the correct policy direction for
Singapore.
Question 5: Should the IDA impose differential interconnection charges – one set that is
applicable between different infrastructure providers, and another that is
applicable between infrastructure providers and service providers and if there are
other arrangements that may be more appropriate and if so, under what
circumstances?
1. Global One respectfully disagrees with the IDA’s proposal to impose
different interconnection charges for facilities-based and service providers.
Although Global One agrees with the IDA that all rates should be based on
forward-looking incremental costs, adopting a demand-side approach (i.e.,
differentiating rates on who buys service) simply makes no sense in this
context.21 Instead of formulating rates based upon who buys a particular telecoms
product or service, (e.g., a facilities-based provider verses a service provider), the
IDA – consistent with the rest of its analysis and the principles of the Code
of Conduct – should adopt a supply-side approach and focus as indicated
above based directly on the cost structure of the actual service to be provided
(i.e., interconnection, IRU’s UNEs, etc.). The market place will drive carriers
(generally) toward facility entry and away from resale entry. But this needs to
be driven by the market and investor decisions, not by regulators. This is
particularly important as most new entrants (like Global One) will probably
mix facility with resale entry.
21 It appears that the IDA is trying to implement some form of Ramsey pricing. While Ramsey pricing
is a great idea in theory, the application of this model to telecoms makes effective implementation virtually
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2. Given the huge sunk costs associated with the local loop, the rate for each
unbundled rate element and a package of unbundled network elements
should reflect actual costs using the IDA’s FLEC methodology. On the
other hand, because simple interconnection – which requires no risk and de
minimis capital expenditure – should be priced at di minimis levels under
FLEC. As such, the IDA should set standard rates for each segment of the
network based upon the forward-looking incremental costs for that
respective segment.22 As emphasized by Global One above, differentiating rates
on who buys service is not relevant.
Question 6: Should the IDA include a risk premium in the cost of capital for broadband
infrastructure and service deployment?
1. Global One opposes any inclusion of a risk premium in the cost of capital
for broadband infrastructure and service deployment for dominant firms’
interconnection rates for several reasons.
2. First, on the theoretical side, any proposed risk premium would actually
hinder – rather than accelerate – the IDA’s stated goal of promoting network
competition, because such a premium simply increases new entrants entry
costs. That is to say, by having new entrants essentially “subsidize” SingTel’s
existing network and prior investments, there will be little incentive or ability
to construct a new network from the ground up. As such, Singapore’s
market will be characterized by a “static, incumbent perpetual resale model”
impossible – i.e., the regulator must know the demand elasticities of each service provided and, moreover, for
efficiency, the firm must make zero economic profit.
22 Cf. Doug Galbi, Model-Based Price Standards for Terminating International Traffic, FCC Staff Paper,
Room Document No. 10, OECD Ad Hoc Meeting on International Telecommunications Charging Practices
and Procedures (Sept. 17, 1997) (proposing a model that any country can use to compute economically relevant
price standards for termination by its international correspondents).
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where everyone is simply reselling the same service. Instead, the IDA needs
to focus on reducing entry costs for new competitors. If the IDA can
successfully promote competition, then competitive forces will pressure
SingTel to upgrade voluntarily to retain market share.
3. Second, from a practical perspective, it appears to Global One that this “risk
premium” may be nothing more than a regulatory subsidy to compensate
SingTel for its failed $340 million broadband investment to which hardly
anybody subscribes due to SingTel’s infamously high prices and poor service
record.23 Like it or not, competition means the ability to succeed and the
ability to fail. It is impossible to have “competition without change.” Thus,
new entrants should not be forced to pay for SingTel’s poor business
judgment. If SingTel opts not to invest, others will. If SingTel does invest,
others will use its service if price and quality are satisfactory. If the
investment is for bottleneck services, then little or no risk exists to SingTel
and no risk premium should attach.
Question 7: What is the appropriate scope of technologies and services that the IDA should
include in the proposed Code with respect to IRS to ensure that the Code
achieves the IDA’s policy objective of transparent, any-to-any interconnection,
and open access?
1. The IDA proposes four major classes of technologies and services to be
included with respect to interconnection related services (“IRS”) – physical
interconnection (PI); origination and termination (O/T); unbundled network
23 See Sheila McNulty, All Wired Up and Nowhere to Go, FINANCIAL TIMES (8 February 2000). Moreover,
according to SingTel’s web page, basic dial-up Internet access runs Singapore’s consumers anywhere to $67.50
for 135 hours of access and $100 for unlimited access. To put these outrageous supra-competitive prices into
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elements (UNEs) and essential support facilities (ESFs). Global One
believes that the IDA has set forth a good framework to analyze the various
types of interconnection related services. Consistent with Global One’s
earlier position, however, Global One respectfully requests that the IDA
state specifically that these categories cover technologies and services relating
to international traffic – e.g., IRU’s, access to cable landing stations, etc. – as
well.
Question 8: Is there a need for reciprocity in the obligation to provide access between
carriers and VASPs? In addition, is reciprocity critical to achieving its objective
of transparent, any-to-any interconnection, and open access and if there are other
arrangements that may be more appropriate and if so, under what circumstances?
1. Question 8 is really a double-edged sword. On one hand, non-reciprocal
access might provide the extra incentive to commit and sink the significant
costs associated with building a new network. As the IDA notes, the UK
used this strategy successfully to accelerate the deployment of alternative
facilities-based networks (e.g., Energis, Scottish Telecoms). On the other
hand, however, the US always has imposed reciprocal access and the US
“carrier to carrier” market is thriving. As such, it is impossible to look at
reciprocal access in a vacuum – instead, the IDA must broadly view
reciprocal access in conjunction with its own efforts to promote entry in toto.
The need is for the supply of facilities to become elastic (and therefore firms
will face a high own-price elasticity of demand and have an incentive to sell,
rather than reserve, excess capacity), and thus the question of mandatory
reciprocal access will become moot.
context, it is possible to get reliable and unlimited dial-up Internet access for as little as US $ 9.95/month (SDL
$ 17.22/month) in the United States.
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Question 9: Is it appropriate to use FLEC as a cost basis, coupled with the option to use
alternative cost standards in the broadband context where appropriate on a
case-by-case basis; and if there are other approaches that may be more
appropriate and if so, under what circumstances?
1. Global One agrees with the IDA that FLEC is the most appropriate cost
basis for all SingTel services at this time. Telecoms is a dynamic industry,
characterized by rapid technological change and declining costs.24
Regarding the IDA’s specific question about using FLEC for broadband
services, Global One has no objection to using CRC on a case-by-case
basis, provided only that interested parties are given a meaningful
opportunity for notice and comment on the determination of CRC.
Question 10: Is LRAIC the correct cost standard in the broadband context (including the
proposed inclusion of a premium for risk in the cost of capital) and if there
are other approaches that may be more appropriate and if so, under what
circumstances?
1. For the same reasons that Global One articulated in its response to
Question 9, Global One agrees with the IDA that LRAIC should be the
appropriate cost standard for determining rates. For the same reasons
that Global One articulated in its answer to Question 6, however, Global
One again objects to any inclusion of a “risk premium” in SingTel’s cost
of capital. Now entrants should not subsidize SingTel’s historical costs
and poor investment decisions; there is essentially no risk in providing
bottleneck/essential facility/interconnect services.
24 Indeed, while the costs of providing the service are declining, as these markets become more
competitive, the costs of selling these services (e.g., marketing) are actually increasing.
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Question 11: Should the IDA use capacity based allocations in broadband context, and
include bonuses and penalties based on the initial capacity requested for
interconnection charges and if there are other approaches that may be more
appropriate and if so, under what circumstances?
1. Global One generally concurs with the IDA’s analysis in regard to
capacity allocations and usage bonuses/penalties, but believes the
proposed analysis needs two slight clarifications. Specifically, Global One
believes that the language contained in the Consultation Document could
be read to mean that the first competitor to seek interconnection would
bear all charges associated for establishing and maintaining the POIs to
support its capacity usage. Global One respectfully suggests that the
IDA clarify up this language because, as explained more fully in Global
One’s response to Question 13a, dominant incumbents have notoriously
used this type of provision to upgrade their facilities at the expense of
new entrants.
2. Similarly, Global One has no objection to the IDA’s proposed use of
capacity bonuses/penalties, but believes that the IDA is a bit vague in the
Consultation document as to what these bonuses and penalties would
look like specifically for both SingTel Retail and new entrants. As such,
Global One asks that the IDA indicate exactly what it intends to do in
this regard in Phase Two of this proceeding.
Question 12: Who has the responsibility for origination and termination charges? In
addition, is it appropriate for the IDA to eliminate potentially originating
charges, where compensatory usage based retail tariffs are collected by the
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originating carrier. In particular, do the current interconnection charges
constrain the IDA in achieving the objective of actively promoting
broadband service innovations and if there are other approaches that may be
more appropriate and if so, under what circumstances?
1. At the present time, in Singapore, the terminating operator or the
operator whose network provides the service is responsible for the
originating charges as well as a payment of transit charges to other
operators, if applicable. In the Consultation Document, the IDA raises
the idea that when tariff rebalancing is completed in Singapore, the IDA
is contemplating a regime where the originating party would be
responsible for these charges.
2. Notwithstanding the above, the IDA itself concedes that such an idea is
clearly premature at this time. Global One concurs with this view.
Question 13: Will differential charges across classes of operators, based on the size of the
customer base and the extent of new infrastructure investment, pose
problems in achieving the IDA’s objectives of actively encouraging
broadband infrastructure and promoting service innovation and if there are
other approaches that may be more appropriate and if so, under what
circumstances?
1. As explained more fully in Global One’s answer to Question 6, under
current market conditions in Singapore, differential charges based on the
size of customer base and extent of infrastructure development will pose
problems in encouraging broadband infrastructure and service
innovation. Instead, as argued above, all rates should be based on
forward-looking costs and related to the specific service to be provided
(e.g., interconnection, collocation, long-haul, IRU’s). Such a regime is
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exactly what the IDA refers to in ¶ 7.1.5 of the Consultation Document
– i.e., differentiating interconnection rates from wholesale rates, etc. To
put in a regime which favor size would only favor SingTel Retail based
only on its historical position in the market.
Question 13a: Should the requesting operator be responsible for charges with respect to
upgrades in functionality of the providing carrier’s networks in the
broadband context and if there are other approaches that may be more
appropriate and if so, under what circumstances?
1. Question 13a raises several important issues. First – and not the least of
which – is the fact that as SingTel already has spent over $340 million to
build a state of the art and ubiquitous broadband network in Singapore.
Accordingly, it is quite unclear to Global One exactly how much
“upgrading” of SingTel’s network is actually necessary to accommodate
basic interconnection requests.
2. Second, although Global One agrees that new entrants should pay their
fair share of upgrade costs, experience in other countries has shown that
the dominant incumbent can use this upgrade process to unnecessarily
and anti-competitively increase new entrants’ costs with specious charges
(e.g., requiring new entrants to pay for, inter alia, switch and transmission
upgrades, a completely new air-conditioning system, a completely new
parking lot (ostensibly to handle the “rush” of various technicians from
competitors to the incumbent’s central office) or an external staircase
(ostensibly to meet supposed “security” concerns). As such, if the IDA
is going to require new entrants to pay their fair share of upgrade costs,
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then the IDA must also require that the dominant incumbent provide
meaningful documentation of each charge, including why that charge was
incurred, how that charge relates to interconnection and how that charge
was derived. Moreover, if upgrade costs are indeed required, then the
IDA should also require dominant incumbents to place the proposed
scope of work out for public bid so as to ensure the lowest possible cost.
(Naturally, the incumbent would have the ability to require minimal
technical requirements, etc. to ensure network reliability.) At the same
time, probable purchasers should be able to challenge such costs as either
unnecessary or excessive.
Question 13b: Should capacity for future use be allowed in all types of IRSs, and whether
proprietary protocols that inhibit interconnection can be used for limited
periods of time? In particular, how do these issues may detract from the goal
of any-to-any system and service connectivity and if there are other
approaches that may be more appropriate and if so, under what
circumstances?
1. Like many of the preceding questions, Question 13b raises several discrete
points. Question 13b first asks whether excess capacity for future use
should be allowed in all types of IRS. Under competition law,
reservation of excess capacity to serve existing needs could be considered
to be a legitimate business justification for refusal.25 Here, however, the
25 See, e.g., City of Anaheim v. Southern California Edison Co., 955 F.2d 1373 (9th Cir. 1992). However, this is
not to say that Global One believes that the IDA should accept this “legitimate business justification” defence
when determining whether new entrants should be granted access to bottleneck facilities controlled by
dominant firms. Instead, as spelled out more fully in Section __ of our comments, Global One again
respectfully submits that the IDA move away from a static competition law hornbook essential facilities
analysis and towards the identification and immediate removal of policy-relevant barriers to entry.
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issue is whether a dominant incumbent can refuse access over a need to
serve some ephemeral future use. Clearly, the answer must be no. If the
IDA wants to accelerate broadband competition, then permitting
dominant incumbents to hoard excess capacity that could be deployed
immediately simply won’t help the process along.
2. The same logic applies equally to the other issue raised by Question 13b
– i.e., whether the IDA should permit proprietary protocols to be used
for a limited period of time. At the end of the day, this business is still
about the ability for one firm to hand off traffic to another and visa
versa. As such, ensuring standard technical interfaces, Operating System
and Support (OSS) regimes, etc., is the raison d’être of the entire
restructuring exercise. If the IDA creates a regime whereby one party
(most likely the dominant incumbent) can impede this process, then any
notion of tangible facilities-based competition is just a fool’s errand.
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CONCLUSION
With both its Draft Code and its Interconnection Consultation Document, the IDA has
made significant progress towards moving the Singapore telecoms sector from monopoly to
competition. While these documents are an excellent first step, the IDA must continue its
efforts in order to achieve its policy goals. These steps include, but are certainly not limited
to: (a) providing for stronger enforcement mechanisms against anti-competitive conduct by
Dominant Licensees; (b) meaningful notice and comment for Dominant Licensees’ tariffs
and pricing behavior; and (c) ensuring immediate pro forma access to bottleneck facilities
controlled by dominant incumbents such as local loop facilities, central offices, backhaul,
and cable landing stations. Global One looks forward to working with the IDA during this
process and to helping the IDA create a restructuring framework that will be the model for
the rest of Asia.
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